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How to Bring Down Drug Prices Post-Election

Rachel Sachs,The Conversation

Credit: Getty Images, iStockphoto, Thinkstock Images, BurAnd

The following essay is reprinted with permission from The Conversation, an online publication covering the
latest research.

Martin Shkreli. Valeant Pharmaceuticals. Mylan. These names have become big news, but just a year ago, most
Americans devoted little time and attention to the question of pharmaceutical pricing. Now, a Kaiser Health
Tracking Poll released Oct. 27 suggests many people care more about the increasing prices of drugs than they
do about any other aspect of health care reform.

Nearly three in four, or 74 percent of respondents, said that making sure that high-cost drugs for chronic
conditions are affordable for patients should be a top priority for the next president and Congress. And 63
percent similarly said that government action to lower prescription drug prices should be a top priority.

This poll comes on the heels of highly publicized scandals involving individuals and companies who hike the

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prices of products like the EpiPen, a life-saving anaphylaxis treatment whose price roughly quintupled in five
years, to more than US$600, or Daraprim, a drug used to treat parasitic infections whose price increased
by 5,000 percent overnight.

Many drug makers and their CEOs have raised the prices of their products with impunity. As prices have risen,
so has the level of outrage among consumers. Policymakers are taking note.

Importantly, to the extent that high drug prices are a problem, it is not an easy one to solve. As
academics have argued, there are many different reasons why a drug may have a high price.

We simultaneously want to reward companies who come up with new, innovative cures for chronic conditions
while preventing companies from raising the price of older generic drugs without good reason. Coming up
with policy interventions that would target only the latter activity while at the same time providing certainty of
profit potential to innovators up front can be challenging.

At the same time, policymaking around drug prices is politically difficult. Strong pharmaceutical interest
groups oppose seemingly any action in this space, arguing that even actions targeted at generic drugs would
decrease innovator companies incentives to invest in new cures. Although I and others have argued that this
concern is oversimplified, it nonetheless has had a significant impact on the debate.

Despite this opposition, the growing appetite among the public for doing something, anything, about high
drug prices has led to a proliferation of policy proposals on the subject. These proposals would affect different
drugs and would act on different institutions within the drug pricing ecosystem. As we approach Election Day,
it is worth thinking about which of these actions would be implemented at different levels of government.
Given the different proposals and the concerns that people have expressed over high drug prices, its worth
looking at possible solutions.

Reforms at the federal level

Many of the most commonly discussed reforms would take place at the federal level. Although there are
greater political challenges to enacting change at the federal level, the potential effects are also much broader
than for reforms enacted at the state level.

Allowing Medicare to negotiate drug prices. The most commonly proposed drug pricing reform would give
Medicare the authority to negotiate drug prices. The thinking is that because Medicare has such purchasing
power, it will be able to demand discounts for the tens of millions of Americans covered by its plans. This
solution is so popular that it has been praised by both Secretary Clinton and Donald Trump. And yet,
it wouldnt work on its own.

Heres the problem: Not only is Medicare itself legally prohibited from negotiating drug prices, but it is also

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legally required to cover certain prescription drugs. Medicare cant get up and walk away from the bargaining
table if it doesnt like the price the pharmaceutical company is offering, which significantly limits its ability to
demand discounts from companies.

If Medicare were given the authority to decline to cover a drug if its manufacturer did not provide a discount,
that would improve its bargaining powerbut that would also prevent Medicare beneficiaries from accessing
the drug in question, which is highly unpopular. Although some scholars have proposed creative ways around
this problem, none has yet made it into the political discussion.

Constrain price increases. Much of the public outrage accompanying high drug prices has come in response to
companies that raise the prices of old drugs, seemingly only to increase their profits. As such, a number of
proposals would constrain the ability of drug companies to increase their prices over time. In fact, one of these
even became law in the wake of Martin Shkrelis activities around Daraprim, enabling Medicaid to recoup
additional rebates on a generic drug if its price rose faster than inflation.

Recently, Secretary Clinton has put forth a plan that would prevent such price hikes more broadly, outside of
just the Medicaid program. At the same time, Secretary Clintons proposal would account for the reasons
behind the price increase, allowing increases where theyre needed to address situations like manufacturing
problems. Because this proposal is limited to older drugs, it may face less political opposition, although its
passage will surely not be easy.

Reforms at the state level

The federal government is not the only entity interested in curbing high drug prices. Many states are currently
considering other measures that would take effect only within their borders, although some might have
follow-on effects more broadly.

State drug price cap laws. California and Ohio are currently considering ballot initiatives to cap what drug
manufacturers can charge to public payers in the state (such as Medicaid) at the price the VA pays for them.

Because these initiatives dont distinguish between different kinds of drugs, affecting both new, highly
effective products as well as older or more marginal ones, we should carefully consider their real-world
impact, and there are persuasive arguments on either side. My bigger concern, however, is that these
initiatives would not actually work to accomplish their stated purpose.

Not only are the prices the VA pays often confidential, but as with Medicare, state Medicaid agencies must
cover most FDA-approved drugs and do not generally have the ability to demand price concessions in favor of
coverage. Removing these two legal obstacles would have additional policy consequences not contemplated
within the current policy discussion of these initiatives.

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Transparency laws. Several states are considering bills which would require pharmaceutical companies to
report information on their research and development costs, marketing and advertising costs, and prices
charged to a number of different purchasers. Vermont is the first state to have officially enacted such a law.
Different states have crafted their bills in different ways, to apply to different classes of drugs at different times
and to require the disclosure of different pieces of information.

These bills themselves do not directly constrain drug prices. However, they may serve to enable states to
gather information that they can use to make such policy going forward. Alternatively, states like Vermont,
which require justification for price increases, may use the laws to serve a naming and shaming function
which has been demonstrated to hold down prices at least to some degree.

These are just a few of the many proposals that have been discussed with the potential to curb high drug
prices. Others would tackle the issue indirectly, by attempting to speed FDA approval of competitor products
or by limiting consumers out-of-pocket expenditures.

In addition, the private sector is taking action on its own to encourage different types of value-based pricing
for pharmaceuticals, with groups like the Institute for Clinical and Economic Review analyzing and providing
critical public information on the value of many new products. But in the near term, these four proposals have
the greatest possibility of becoming law and deserve our attention going forward.

This article was originally published on The Conversation. Read the original article.

Rachel Sachs

Rachel Sachs is an associate professor of law at the Washington University in St Louis.

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